As data processing and storage capabilities have improved, various local, state, and/or Federal agencies and bureaucracies, i.e., governments, have come to rely on these capabilities to more effectively and efficiently gather, store, and use, various forms of data. As a result, these governmental powers have also imposed greater reporting and tracking responsibilities on their citizens, including small business owners and other taxpayers. Consequently, many small business owners are now faced, or soon will be faced, with the responsibility of providing the government more and more data by filling out and/or submitting more and more reports, schedules, forms, filings, etc. In addition, some of these forms, such as IRS form 1099, must be completed by the small business owner and then sent to third party vendors associated with the small business.
In many cases, the generation of this data, and the filling out of the associated forms, represents a significant burden on the small business owner and can result in significant fines, or other undesirable actions, if the forms are not completed properly and properly submitted.
One current example of the expanded data the Federal government, i.e., the Internal Revenue Service (IRS), may require starting in 2012 is the 1099 reporting requirement mandated by the recently passed Health Care and Education Reconciliation Act of 2010 (Pub.L. 111-152, 124 Stat. 1029), also referred to herein as the Healthcare Act. Under the Healthcare Act, any small business that spends in excess of $600.00 with any vendor in a given tax year must fill out an IRS form 1099 for that subject vendor and then submit the filled out 1099 form to the vendor. Of course, the small business owner will also want to maintain proof that this action was taken as well.
For many businesses, this new/expanded requirement of: tracking business expenditures with all vendors; identifying the subject vendors with which the business spent $600.00 or more in a given tax year; obtaining the proper identification and contact information for each subject vendor, such as the subject vendor's EIN/SSN number; gathering the expenditure data associated with all the subject vendors; obtaining the 1099 forms required; using the expenditure data to fill out the required 1099 form for each subject vendor; submitting the required 1099 form to the each subject vendor and/or the proper agency; and then creating and retaining proof of these actions for each subject vendor represents a significant investment of the business owner's time and/or resources. This, in turn, leaves less time and/or resources for the small business owner to devote to making his business succeed. Ironically, in the case of tax forms, such as IRS form 1099, the diversion of resources away from the management of the business can actually result in a less efficient/profitable business and therefore less tax revenue. Clearly this is less than ideal for both the business and the country.
In case of fact, the 1099 reporting mechanism enacted in the Health Care and Education Reconciliation Act of 2010 (Pub.L. 111-152, 124 Stat. 1029) is recognized as being so burdensome on small businesses that that particular provision has been singled out by the President and Congress as being subject to review and possible revision. However, as of the time of filling, the provision remains intact and is scheduled to take effect in 2012.
Regardless of whether the specific 1099 reporting mechanism enacted in the Health Care and Education Reconciliation Act of 2010 (Pub.L. 111-152, 124 Stat. 1029) is implemented or not, the fact remains that small business owners currently are, or likely will be, faced with the burden, or increased burden of: tracking expenditures with all vendors; identifying subject vendors with which the business spends some threshold amount, or more; obtaining the proper identification and contact information for each subject vendor, such as the subject vendor's EIN/SSN number; gathering the expenditure data associated with all the subject vendors; obtaining the appropriate one or more forms required; using the expenditure data to fill out one or more required forms, for each subject vendor; submitting the required forms to the each subject vendor and/or the proper agency; and then creating and retaining proof of these actions for each subject vendor.
As noted above, using current data processing and reporting systems this is, or will be, a significant burden on small business owners and has the potential to be a drain, or at least an addition strain, on the entire economy. However, as also noted above, despite these issues, increased reporting and an increased number of required forms will probably be an unavoidable fact for small business in the near future.